NTT Aims to Win Breakup on Its Own Terms

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NTT Aims to Win Breakup on Its Own Terms

Nippon Telegraph and Telephone has learned some lessons from its American cousin on how to make the most from the inevitable breakup of a vast phone monopoly.

Rather than suffering a forced breakup as AT&T did by US courts in the 1980s, the Japanese telecom is slyly encouraging a breakup so it can win on terms that may throw down obstacles for competitors, industry observers say.

"By appearing to help, they will be able to control the process by controlling what kinds of services, like local phone calls, the competitors can offer," said Randall P. Lowe, a partner at Piper & Marbury. "They've learned from the battles of the past, like a military general learns from the past."

Japan's top business paper, the Nihon Keizai Shimbun, said Monday that NTT and Japan's telecommunications ministry had agreed on a proposal to divide NTT into three parts - two regional local phone companies and a long-distance company that could expand into international phone service. Unlike the complete breakup of AT&T's local service into the Baby Bells, however, all the NTT parts would remain united under a single holding company. The distinction here is crucial, analysts say, because it gives the company the appearance of opening up to competition while still controlling the process.

"What they're going to have to do is open up their local telephony markets so they can position themselves to control the process as much as possible," says Deanna Campbell Robinson, director of the Pacific Advanced Communications Consortium.

The game is similar to the one played today in the US' local-phone market, analysts say. While Baby Bells openly talk about how they favor competition, they fight off attempts by TCI Corp. and others to enter their markets. Local competition was mandated by Congress in the Telecommunications Act, but the process has been slow going.

This track is the smartest one for NTT to take hold of much of its power. "By doing that, they can better preserve their position," said Lowe, who was a counsel to AT&T in the 1970s. "If they try to hold off competition, ironically, they will bring on more competition more quickly."

In the '70s and '80s, Lowe said, AT&T made the mistake of fighting too hard to forestall the entry of MCI into the market. As a result, MCI expanded beyond its initial focus of private-line service for businesses. Eventually, the courts ordered open competition, loosening AT&T's iron grip. "The industry learned from those mistakes," Lowe said.

NTT and the Japanese government have refused to comment on the proposal. But analysts said the deal would go through as predicted. In fact, the acceleration of phone companies crossing borders is raising the stakes for NTT. The recent purchase of MCI by British Telecom and the alliance between Sprint and Deutsche Telekom are spurring NTT to open Japan's phone market on terms it can control.

"Business people in Japan will put pressure on them because they want cheaper rates," said Robinson. "But the companies will do what is best for themselves."